QCOM Sags: It’s All About Apple and iPhone 5, Says Citi

By Tiernan Ray

Citigroup’s Glen Yeung this morning reiterates a Buy rating on shares of Qualcomm (QCOM), while raising his price target a buck to $74 but stripping the stock of the “Top Picks Live!” designation (yes, it does have an exclamation point) after the company last night beat fiscal Q2 estimates but offered a Q3 outlook below analysts’ expectations.

Qualcomm said on its conference call it expected to ship between 144 million and 152 million “MSM” chipsets this quarter, which is flat to down about 3% from last quarter.

While the company attributed the shortfall to supply constraints for newer chips with 28-nanometer feature sizes, Yeung thinks it was all about Apple (AAPL).

Specifically, Apple’s forthcoming transition to the as-yet-unannounced “iPhone 5,” he speculates, means the company has less need for Qualcomm’s existing 45-nanometer chips this quarter:

While Qualcomm focused attention on supply shortages at 28nm, their sequentially lower MSM unit guidance underscored declining shipments of 45nm chips. We attribute this predominantly to Apple who is reducing demand for 45nm baseband (MDM6610 in iPhone4S) in favor of 28nm baseband (MDM9615 in iPhone5). We first wrote about Apple’s shift to 28nm on 2/26/12 and again on 3/27/12. Qualcomm’s expectation of growing 28nm production in CY3Q12, with higher volume in CY4Q12, corresponds well with Citi’s expectation of a September/October iPhone5 launch. It also corresponds with declining 45nm production as iPhone4S inventories are reduced. But with Apple continuing to transition more toward Qualcomm (iPhone 4S/5) and away from IMC (iPhone3GS/4), we view the June/September quarter MSM cap as a prelude to strength in the December quarter.

At least one other analyst I’ve spoken to on background has the same opinion as Yeung. I think it will be the emerging consensus this morning.

Qualcomm shares are down $2.48, or 3.7%, at $64.50 in early trading, regaining some ground from last night’s sell-off.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.